Opinion
05 Civ. 3648 (GBD) (AJP).
September 29, 2005
REPORT AND RECOMMENDATION
To the Honorable George B. Daniels, United States District Judge:
On August 18, 2005, Judge Daniels entered a default judgment for plaintiff Christian B. Silge against defendants Anne B. Merz, Kevin J. Merz and Enterprise Technology Corp. ("ETC"), and thereafter referred the matter to me for an inquest on damages. (See Dkt. No. 7: 8/18/05 Default Judgment; Dkt. No. 8: Order; Dkt. No. 11: 9/15/05 Order of Reference.) Defendants have not submitted any papers in connection with the inquest.
For the reasons set forth below, the Court should grant judgment to plaintiff Silge against defendants, jointly and severally, for the amount sought in the complaint, $1,153,545 (inclusive of prejudgment interest), plus $290 in costs.
FACTS
"Where, as here, 'the court determines that defendant is in default, the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.'"Chen v. Jenna Lane, Inc., 30 F. Supp. 2d 622, 623 (S.D.N.Y. 1998) (Carter, D.J. Peck, M.J.) (quoting C. Wright, A. Miller M. Kane, Federal Practice Procedure: Civil 3d § 2688 at 58-59 (3d ed. 1998)).The complaint alleges that "[b]eginning on approximately January30, 1992, and from time to time thereafter, plaintiff advanced funds in the form of a loan (the 'Loan') to A. Merz and K. Merz in connection with their need, among other things, to aid the general cash flow of and to benefit ETC [Enterprise Technology Corp.], at the specific oral request of A. Merz and K. Merz. The Loan was funded by various checks payable either to A. Merz or to ETC. A. Merz and K. Merz agreed to repay the Loan." (Dkt. No. 1: Compl. ¶ 7.) The complaint further alleges that from 1992 until January 2002, defendants repaid portions of the loan, but that the outstanding balance was $1,153,545 as of March 31, 2005. (Compl. ¶ 9.) That amount included interest, based on plaintiff's borrowing against his securities, which interest the Merz defendants agreed to reimburse. (Compl. ¶ 8.) The complaint asserted causes of action for breach of contract (Compl. ¶¶ 11-12) and quantum meruit (Compl. ¶¶ 13-14).
Silge's "Declaration in Support of Judgment By Default" reiterated the fact of the loan and interest agreement, in language virtually identical to paragraphs 7 and 8 of the complaint. (Silge 8/4/05 Aff. ¶¶ 3-4.) Based on additional interest, however, Silge asserted that the outstanding balance was $1,173,625. (Silge 8/4/05 Aff. ¶ 5 Ex. C.)
The Court required plaintiff Silge to file additional papers in support of his inquest request by September 20, 2005, which Silge did (see Dkt. Nos. 12-13), and for defendants to file opposition papers by September 27, 2005, which defendants did not. (See Dkt. No. 9: 9/6/05 Order.)
Silge's "Declaration for Inquest on Damages and Exhibits," dated September 19, 2005, explained that on March 5, 1997, the loan balance was $1,510.41. (Dkt. No. 12: Silge 9/19/05 Aff. ¶¶ 6-7.) Between that date and the end of August 1997, Silge loaned $1,350,000 more to defendants, in the form of six checks, but he also was repaid $600,000 in that period (Silge 9/19/05 Aff. ¶ 6-7 Ex. A), as follows:
Date Description Amount Loan Balance
05-Mar-1997 Opening Balance $ 1,510.41 $ 1,510.41
06-Mar-1997 Check Number 1069 to ETC 150,000.00 151,510.41
14-Mar-1997 Check Number 1073 to ETC 500,000.00 651,510.41
18-Apr-1997 Payment (500,000.00) 151,510.41
07-Jul-1997 Check Number 1267 to Anne Merz 200,000.00 351,510.41
07-Jul-1997 Check Number 1268 to ETC 100,000.00 451,510.41
31-Jul-1997 Check Number 1272 to Anne Merz 200,000.00 651,510.41
04-Aug-1997 Payment (100,000.00) 551,510.41
22-Aug-1997 Check Number 1275 to Anne Merz 200,000.00 751,510.41 (Silge Aff. ¶ 7; see Silge Aff. Ex. A: Copies of the 6 Checks.) By the end of August 1997, "defendants stopped making regular payments" on the loan (Silge 9/19/05 Aff. ¶ 4), although they did repay $3,000 on September 1, 1999 and $50,000 on January 24, 2002 (id. ¶ 7).
Based on margin interest that Silge paid (and interest to his sister for a loan so he would not have to sell stock), Silge computes a loan balance of $1,179,209.74 including interest as of August 31, 2005. (Silge 9/19/05 Aff. ¶ 7; see also id. ¶¶ 8-9 Exs. B-C.)
ANALYSIS
The Second Circuit has approved the holding of an inquest by affidavit, without an in-person court hearing, "'as long as [the Court has] ensured that there was a basis for the damages specified in the default judgment.'" Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997) (quoting Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989)).
The complaint (the allegations of which, except as to amount of damages, are taken as true — see page 2 above) and Silge's affidavits establish that the Merz defendants borrowed money from Silge for the benefit of their company ETC. Silge's affidavit further establishes the outstanding balance of the loan in August 1997, when defendants stopped making repayments, thus breaching the loan agreement, as $751,510.41. Plaintiff Silge is entitled to judgment for that amount, plus interest, against all three defendants, jointly and severally, under the breach of contract and quantum meruit theories alleged in the complaint.
As to interest, the complaint and plaintiff Silge's affidavit allege that defendants agreed to repay Silge the actual interest he incurred in his securities margin account. (Compl. ¶ 8; Silge 9/19/05 Aff. ¶ 8.) Based on Silge's calculations, the principal and interest amount outstanding on August 31, 2005 (after crediting defendants for the $53,000 repaid in September 1999 and January 2002) comes to $1,179,209.74. (Silge 9/19/05 Aff. ¶ 7.)
Silge's counsel's letter to the Court, however, proposes as plaintiff's "primary" interest analysis, the use of New York's statutory prejudgment interest rate of 9%, C.P.L.R. 5004. Under New York law, prejudgment interest should be awarded in breach of contract cases, especially cases involving failure to repay loans (although most loan agreements themselves provide for default interest). C.P.L.R. § 5001(a) ("Interest shall be recovered upon a sum awarded because of a breach of performance of a contract . . ."); see, e.g., United States Fidelity Guar. Co. v.Braspetro Oil Servs. Co., 369 F.3d 34, 78 (2d Cir. 2004); New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599, 606 (2d Cir. 2003); Adams v. Lindblad Travel, Inc., 730 F.2d 89, 93 (2d Cir. 1984)) ("Under the law of New York, therefore, prejudgment interest is normally recoverable as a matter of right in an action at law for breach of contract.");Bulk Oil (U.S.A.), Inc. v. Sun Oil Trading Co., 697 F.2d 481, 484-85 (2d Cir. 1983) ("The award of statutory pre-verdict interest under N.Y. [C.P.L.R. § 5001] is founded on the fact that the aggrieved party has been damage[d] by a loss of the use of money or its equivalent and that unless interest is added the party aggrieved is not made whole. Statutory interest is compensation for the use of money."); Bristol Inv. Fund, Inc. v. Carnegie Int'l Corp., 310 F. Supp. 2d 556, 567-68 (S.D.N.Y. 2003) (for breach of loan agreement, lender was entitled to recover contractual amount of default interest).
The principal amount of the loan on August 25, 1997 was $751,510.41. At 9% simple interest, the interest amounts to $67,635.94 annually. Eight years of interest (August 1997 to August 2005) thus is $541,087.52. Principal ($751,510.41) plus interest ($541,087.52) less additional repayments ($53,000) totals $1,239,597.93.
The Court need not decide which of these two interest rates to use, however, becuse the principal amount plus interest under either method exceeds the ad damnum clause in the complaint. As this Court stated in Pacific Westeel, Inc. v. DR Installation, 01 Civ. 0293, 2003 WL 22359512 at *2 (S.D.N.Y. Oct. 17, 2003) (Peck, M.J.):
Rule 54(c) of the Federal Rules of Civil Procedure provides that a "judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment." As explained by Professors Wright and Miller:
The first sentence of Rule 54(c) states that a judgment by default is limited to the relief demanded in the complaint. The theory of this provision is that the defending party should be able to decide on the basis of the relief requested in the original pleading whether to expend the time, effort, and money necessary to defend the action. It would be fundamentally unfair to have the complaint lead defendant to believe that only a certain type and dimension of relief was being sought and then, should defendant attempt to limit the scope and size of the potential judgment by not appearing or otherwise defaulting, allow the court to give a different type of relief or a larger damage award. . . . In sum, then, a default judgment may not extend to matters outside the issues raised by the pleadings or beyond the scope of the relief demanded. A judgment in a default case that awards relief that either is more than or different in kind from that requested originally is null and void and defendant may attack it collaterally in another proceeding.
10 Wright, Miller Kane, Federal Practice Procedure: Civil 3d § 2663 (1998) (fns. omitted); accord, e.g., Ainbinder v. Bernice Mining Contracting, Inc., 01 Civ. 2492, 2002 WL 461576 at *3 (S.D.N.Y. Mar. 26, 2002) (Peck, M.J.); Semi Conductor Materials, Inc. v. Agriculture Inputs Corp., 96 Civ. 7907, 1997 WL 566083 at *2 (S.D.N.Y. Aug. 19, 1997) (Kaplan, D.J. Peck, M.J.); see also, e.g., Riggs, Ferris Greer v. Lillibridge, 316 F.2d 60, 62-63 (2d Cir. 1963); Levesque v. Kelly Communications, Inc., 91 Civ. 7045, 1993 WL 22113 at *6 (S.D.N.Y. Jan. 25, 1993); Marina B. Creation S.A. v. de Maurier, 685 F. Supp. 910, 912 (S.D.N.Y. 1988); 10 Moore's Federal Practice § 54.71 (3d ed. 2001).
The complaint seeks damages of $1,153,545. (Compl. ¶¶ 9-10, 12, 14 Wherefore clause.) Thus, the Court must "cap" the plaintiff's damage award at $1,153,545.
Had the complaint sought the principal amount of the loan, "plus prejudgment interest," the Court could have awarded the full amount, but the complaint incorporated interest to date into the amount sought and did not leave any room for the Court to award a greater amount.
Plaintiff also has submitted a request for costs of $1,890.05. (4/8/05 Bill of Costs.) Because the oral loan agreement did not provide for attorneys' fees, many of the requested amounts (including online legal research, which is the largest cost at $1,525.09) are not properly recoverable as "costs." Accordingly, plaintiff should be awarded costs of $290 (S.D.N.Y. filing fee of $250 and $40 service fee).
CONCLUSION
For the reasons set forth above, the Court should enter judgment for plaintiff against defendants for the amount sought in the complaint, $1,153,545 (inclusive of prejudgment interest), plus $290 in costs.
SERVICE
Plaintiff's counsel is to serve this Report and Recommendation on defendants and file proof of service with the Clerk of Court.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable George B. Daniels, 40 Centre Street, Room 410, and to my chambers, 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Daniels. Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993),cert. denied, 513 U.S. 822, 115 S. Ct. 86 (1994); Roldan v.Racette, 984 F.2d 85, 89 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.), cert. denied, 506 U.S. 1038, 113 S. Ct. 825 (1992); Small v. Secretary of Health Human Servs., 892 F.2d 15, 16 (2d Cir. 1989); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a), 6(e).